Oil can reach $20 this year because 'the Saudis are willing to play the long game'

Poker Photos / Flickr, CCOil prices have fallen by more than 70% since the summer of 2014. Right now, they're about $26.40 a barrel.

But according to IHS Insight's chief economist, Dr. Nariman Behravesh, who oversees a team of more than 400 economists, worse is yet to come.

"Is it feasible for oil to reach $20 per barrel in 2016? Yes it is," Behravesh said in an interview with Business Insider at the World Economic Forum in Davos, Switzerland. "Oil can reach $20 this year. But if it does, it will be temporary, because at those prices a lot of production will be unprofitable and will cease."

So Saudi Arabia has the power to boost its economy with a simple policy shift.

Behravesh pointed out that the pain the country was feeling from keeping the oil prices low would not stop it from cutting supply anytime soon.

Nariman Behravesh, chief economist from IHS Global Insight, talked to Business Insider in Davos for the WEF meeting. IHS Global Insight "The Saudis are willing to play the long game," Behravesh said. "While their budget is under pressure, they still have ample forex reserves and will able to last at least another year and possibly two.

"The winners are consumers of oil in the developed world and also in the emerging world, for example India. The losers are high-cost oil producers such as Russia and Venezuela."

Some 2,500 people from more than 100 countries for are in Davos for the WEF meeting. China's slowdown is also being scrutinized by delegates as a key economic risk.

Behravesh said that since the slowdown had already been apparent, a huge bubble isn't about to pop and sink the Western economies.

"China's economy has been slowing down for some time, and its huge debt pile and vast amount of excess industrial capacity are well-known problems," he said.

"The real reason for China's recent financial problems are the burst stock market bubble and the chaotic response of the government to the crash and the intense downward pressure on the exchange. This had spooked the markets and undermine confidence in Chinese policymakers.

"The exposure of the developed world to China is fairly small. The financial linkages are weak, and the US and EU do not export that much to China. Assuming that China is able to stabilize its financial markets, then global markets will become calmer."

So what are the other key risks for this year? Well, Behravesh says one is "the rising tensions between Iran and Saudi Arabia."

"In the unlikely event that this escalates into a bigger conflict," he said, "then the impact on oil markets could be very problematic."